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Depreciation, Provisions and Reserves

Madhya Pradesh Board · Class 11 · Accountancy

Quick revision notes for Depreciation, Provisions and Reserves — Madhya Pradesh Board Class 11 Accountancy. Key concepts, formulas, and definitions for last-minute revision.

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Key Topics to Revise

1

Section I: Depreciation

  • Depreciation is the decline in value of fixed assets due to use, passage of time, or obsolescence
  • It's an expired cost charged against revenue of accounting period
  • Depreciation is a non-cash expense that doesn't involve cash outflow
2

Methods of Recording Depreciation

  • Two methods: (1) Charging to Asset Account, (2) Creating Provision for Depreciation Account
  • Method 1: Asset appears at written down value in Balance Sheet
  • Method 2: Asset appears at original cost, with separate Provision for Depreciation
3

Section II: Provisions

  • Provision is charge against profit for known liability with uncertain amount
  • Created to follow prudence/conservatism principle
  • Must be created even if no profits exist
4

Section III: Reserves

  • Reserve is appropriation of profit after calculating net profit
  • Created to strengthen financial position or for specific purposes
  • Cannot be created unless profits exist

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Key Concepts

Depreciation is the decline inUnder this methodDepreciation is charged at a fixedProvisions are charges against profit createdReserves are appropriations of profit retained

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Content is aligned to the official syllabus. Refer to the board website for the latest curriculum.

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